Every day I am asked the question – do you think we are in a real estate bubble? How much do you think values will rise over the next few years? Will there be a crash?? I wish I could have a magic looking glass, but I’ve been instructed never to make predictions. However, I can give you some key information and pretty graphs that will possibly help you decide the answer for yourself. So let’s look at a couple important items, comparing 2006 to 2016, and then play with some charts tracking 10 years of the real estate market in Charleston.
The way I see it, two things are different between 2006 and 2016 – lending practices, and our local economy.
Loosey Goosey Lending
Back in 2006 all over the country, your hairdresser probably owned multiple ‘income’ properties, or was making bank flipping houses just because the market was frenzied and if you had a good credit score, you weren’t asked for much proof of income – so called ‘no-doc loans’. This loose lending created a market in which everybody was buying houses, and there seemed to be no end to the skyrocketing prices, so you could always make a profit. Too many people thus owned too many properties, so when the Great Recession hit, no one was buying anymore, but everyone wanted to sell. Obviously, this is a major simplification, but you know to what I am referring.
In 2016, there are no more ‘no-doc’ loans unless you are very wealthy with a long-standing relationship with your asset manager. Yes, lenders are a bit more flexible today than even two years ago, with new products that make it easier to write a loan, but the process is so detailed and excruciating, that even my father ditched the process of a refinance because they were asking for his first born (ME!).
Economic Drivers in Charleston
Charleston’s economy in 2006 was nowhere near what its economy is today. When I moved here from NYC in July of 2005, Charleston’s most significant economic driver was still tourism. The technology sector was in its nascent phase. Manufacturing was just huffing along. And yes we were growing in leaps and bounds, but the diversity of our economic foundation left much to be desired. Now obviously I can’t look at all the factors influencing our growth and success, but let’s look at three: Tourism, Aviation, and Technology.
Tourism/Hospitality – According to the Office of Tourism Analysis, in 2006, tourism had approximately a $3,000,000,000 impact on our economy. Today, we are nearing $4,000,000,000 – a more than 20% increase in a decade. Just the Wine and Food Festival alone, started in 2006, today has a $9,000,000 impact. And let’s not even get started on all the new hotels and restaurants!
Aviation – Led by Boeing, which arrived in Charleston in 2011, the aviation sector in the metro area now has a $14,000,000,000 impact, – double the number of pre-Boeing, and today considered 40% of our local economy, providing 16% of our jobs. Additionally, the number of people flying into Charleston International Airport has increased more than 50% in the past decade.
Technology – When I moved to Charleston in 2005, I worked for the Chamber of Commerce developing programs designed to help stimulate the growth of entrepreneurs in Charleston and statewide. I then moved to SC Launch!, which assisted technology entrepreneurs in gaining funding. Back then, there were fewer than 50 technology companies in Charleston – today there are more than 200. Here are some other interesting stats:
- The Charleston Digital Corridor – a tech incubator (among other things), has gone from 40 members in 2005, to 121 in 2015 – and these companies cumulatively raised over $80,000,000 in funding this past year.
- Technology companies in the metro area now employ over 11,000 people, and that number is expected to almost double in the next few years.
- Charleston’s tech economy is growing 26% faster than the national average.
Companies like Automated Trading Desk (now owned by CitiGroup for the low price of $680,000,000), PureCar (purchased for $125,000,000), SPARC (purchased by Booz Allen Hamilton), PokitDok, PeopleMatter, and Good Done Great, Car Leasing from ICL , drive this economy forward, and have attracted big name companies for acquisitions and significant venture capital infusions – something that never would have happened in 2006.
And a few more things…
We now have more than 40 people per day moving to the Charleston Metro Area. Mount Pleasant’s population alone has increased by about 20% in the past decade. And here’s a link to the Charleston Regional Development Authority’s ‘Scorecard‘ showing some other impressive stats, including per capita income growth, exports, GRP, etc…
SO, have you absorbed all that?? Now, let’s look at 10 years of the real estate market in Charleston, so you can answer your burning questions yourselves. These little graphics are interactive so just use your mouse and click away!
Let’s start with Median Prices in the metro area (Charleston, Berkeley, Dorchester counties) to get a baseline. Remember, 2007 was considered the peak of prices in this area, 2011 was the trough.
Now let’s look at 3 different areas for comparison – Isle of Palms for a little island vibe, Downtown Charleston south of Hwy 17 for the urban, and Mount Pleasant South of the IOP Connector for the suburban.
Now let’s look at Closed Sales – meaning the number of properties purchased in any given year.
Isle of Palms, Mount Pleasant, Downtown
And finally, let’s take a look at ‘Months Supply’, which indicates how many homes are for sale versus how many are purchased. 6 months is a balanced market – below that it is a Seller’s market, above it, it is a Buyer’s advantage.
Isle of Palms, Mount Pleasant, Downtown
So having looked at this data, I have a few comments. It’s interesting to me that the number of closed sales all over is LESS in 2016 than it was in 2006, yet we have had more than a 20% increase in population in the same time frame. I also note that there is very little inventory – so I assume demand is outweighing the supply. This imbalance is helping to drive the prices up in suburban areas like Mount Pleasant don’t you think? A 70% increase in median prices there from 2006 to 2016? No wonder people are calling bubble. (By the way, I have a theory that it was the opening of the Ravenel Bridge in Summer 2005 that led to Mount Pleasant’s explosive growth. Before that, no one wanted to drive over the scary Grace bridge!)
I’d say it doesn’t look bubbley in Downtown south of Hwy 17, or bubbley at all on the Islands. It just looks like a bubble, and may feel like a bubble in the lower price ranges, because we do not have enough houses to accommodate the demand, the population influx and our growing economy. There are many factors that contribute to that:
- Investors with cash buying up inexpensive houses leaving fewer for first time home buyers and people with average incomes.
- A tight local construction market in which demand for workers and products is far outpacing supply so prices to build are rising.
- Charleston’s natural geographic constraints. Unlike Atlanta or Charlotte (thank god!) we can only build out 180 degrees, and those degrees are further constrained by our marshes and waterways meandering throughout.
- Development and zoning restrictions.
- Traffic – the further out you build, the worse traffic gets and there’s only so much of a commute that human beings will tolerate.
- For big builders, there’s just more profit margin in building more expensive houses (see #2).
So Bubble Yes? Or Bubble No? And where do YOU think Charleston’s real estate market is going to go over the next 5 years? I’d love to know.